In a very few weeks, I will open a wonderful brown letter with a wonderful document sent from my wonderful Government including… a wonderful Tax Refund!!! Receiving money from the government is always a lot of fun. However, you must have a tax refund strategy in place

4 Tax Refund Strategies I Found:

#1 Spend all your tax refund!

Sounds stupid, egoist and irresponsible? Not if you have planned it this way My tax refund strategy this year is actually to spend it all. However, I have budgeted my tax refund from a while back. By contributing to the maximum limit of my RRSP, I was sure to get a huge tax refund. This is what I suggest to young people who wants to travel or treat themselves; setup a monthly investment contribution towards your RRSP in order to maximize your contribution each year and spend your tax refund on something you like. This will be your “reward” for making the sacrifice of building a good retirement saving nest.

#2 Invest your tax refund

If I wasn’t moving and if I hadn’t to buy a few pieces of furniture, I would definitely invest all my tax refund. This is a perfect timing this year as the stock market is a bit shaky because of our Greek friends overseas who are in the deep…

If you still have unused RRSP contribution, this is the perfect way to apply the “double dip” RRSP investing strategy. This way, you will get an additional tax refund next year

#3 Pay down your debts

There is nothing like putting a lump sum payment on your mortgage to pay it faster. If you wonder if you should pay your mortgage or invest your money, why don’t you contribute to your RRSP’s and use your tax refund to make a lump sum payment on your mortgage? With this tax refund strategy, you will be able to A) build a comfortable retirement and B) pay your mortgage faster!

#4 Do something that will last with your tax refund

I usually take my tax refund and use it for something specific that will last: doing home renovations, buying deals (BBQ, appliances), do landscaping, invest in my company, etc. I usually try to use my tax refund in a way that it will remind me how great it is to receive a good cheque from the government.

We don’t always want to make budget sacrifices to invest in our RRSP’s, or to take a good hour to look around the web to make sure we have every penny back we are entitled to. Or to keep track and gather all the paperwork that will grant us the right to claim all those tax deductions and tax credit.

So this is why I try to use my tax refund in a way that I will remember for next year. What about you, what is your tax refund strategy?

Our tax refund this year went to increasing our emergency fund. We actually treat it just like any other free cash we get month-to month. It either goes to paying down our mortgage, invest it, savings, or increasing our emergency fund.

It’s a little late for this now, but for anyone who planned to reinvest the refund into their RRSPs, I recommend doing an RRSP gross-up at the end of Feb instead.

A gross-up basically gets the multi-year refund into your RRSP sooner. Normally you’d get a refund this year, invest it for a smaller refund next year, which generates a smaller refund the year after, etc. Instead you put all that money in before the tax deadline, and pay yourself back with the tax refund.

To figure out your grossed-up amount take your RRSP contributions and divide them by (1 – tax rate). So if you contributed $1000 and pay 40% tax your grossed-up amount is $1666. Which means if you add $666 to your RRSPs just before the deadline, then file your taxes, you’ll get back $666.

If you do it the ’slow’ way you’d get back $400, and then the year after get back $160, then $64, etc.

One strategy is to not have a refund but have your tax adjusted right away. If you have an office plan, that’s usually done for you. Otherwise, you simply need to fill out a government form and get your employer to sign it which shows you are doing regular contribution. That way, your tax refund is already take care of when it comes to RRSP. No need to plan for a refund.

That said, tax refund appears to be something many people look for … I would personally do what Kenny recommends which I have done in the past.